Three Reasons Why You Should Not Extend Your Brand

Branding wars don’t exactly get the same kind of attention that an athletic or political rivalry may garner, but the war between Coke and PepsiCo has gotten more attention than most. According to some, the war is now over and Pepsi has lost. Mallory Russell, writing for Business Insider in May 2012, noted that in 2011 Coke sold $28 billion worth of soda (in Ohio we say pop) while PepsiCo sold a paltry $12 billion over the same time period. That’s a pretty sound trouncing and it makes this brand war seem like it wasn’t very even to begin with. What happened to PepsiCo?

Many might argue, as Russell does in her article, that PepsiCo has been a victim over over-extending its brand. Never satisfied to be just “soda guys,” PepsiCo owns Frito Lay, Quaker, Aquafina water, and Tropicana among other well-known formerly autonomous companies. Pizza, chips, oatmeal, and juice are all areas into which Pepsi extended itself beyond its core. Coke, in contrast, has pretty much always been about Coke, although it did recently add Dasani water to the fold. The financial reports from 2011 seem to indicate that when it comes to the soda wars, Coke’s strategy was the better bet.

The temptation to extend your company’s brand is understandable, especially if you have a well-established brand already. Diversifying your business and possibly finding new ways to make a profit also seems entirely logical. However, we can offer three reasons why brand extension might not be beneficial to your company in the long run.

Russell points out that PepsiCo overall earned 38% more profit than Coke did in 2011 despite the fact that Coke sold more soda. The extent to which that is true is the extent to which PepsiCo earned money apart from its primary Pepsi brand. Instead of keeping its primary brand in prime condition, PepsiCo relied on smaller parts of its corporate pie to pick up the weight. This has diluted (no pun intended) the primary Pepsi brand, especially in comparison to Coke. If your primary brand can’t carry your company, that can send a message of weakness to the industry and to your competitors. If you need an example, simply reference the fact that PepsiCo is being declared the loser in the cola wars.

2. A Misstep Can Tarnish Your Entire Company

Brand extension can be a risky venture. A bad move not only could drain your company’s finances but it could also permanently alter how your customers perceive of you. Even if your brand is strong and well-known, a serious mistake can wreak havoc on your company’s reputation.

3. Brand Extension Can Lead to Brand Confusion

One of the advantages a powerful brand offers is that it enables customers (and others in your industry) to identify you in one key phrase or perhaps even one word. Apple for many years was simply synonymous with computers. Google is search. Starbucks is coffee. Kleenex is, well, kleenex. Nobody called a kleenex a “facial tissue,” right? That’s a powerful brand. But what happens when you start to diversify? Suddenly it becomes more difficult to identify what you’re all about, both internally and for your customers. PepsiCo is no longer just a soda company. Now they’re everything from soda to oatmeal to chips. You can’t really call them the soda guys. You can’t really call them any one thing that encapsulates everything they’re doing. PepsiCo’s primary rival, on the other hand, is still just Coke, makers of Coca Cola.

Of course, few things in business are black-and-white. There can be many advantages to diversifying a business, but it is important to have a strategic plan in place so that the primary brand is preserved. In some cases, a careful analysis may reveal that the risks of brand extension may not outweigh the potential benefits.